The ATO has applied for special leave to appeal to the High Court of Australia in respect of the decision in PepsiCo, Inc. v Commissioner of Taxation [2024] FCAFC 86. The Full Federal Court found that PepsiCo was not liable to royalty withholding tax and that the diverted profits tax (DPT) did not apply.
The ATO cannot provide any further comments on this matter whilst the High Court considers the special leave request.
The ATO will also defer finalisation of draft ruling TR 2024/D1: Income tax: royalties - character of payments in respect of software and intellectual property rights pending the outcome of the High Court proceedings. The view in the draft ruling remains our considered view in relation to software arrangements. However, the ATO sees that there is benefit in deferring finalisation of the ruling pending possible consideration by the High Court of related matters in PepsiCo. This will ensure that the ATO can assess the effect, if any, of any High Court reasoning on software arrangements.
We continue to progress the development of practical guidance about how the view in TR 2024/D1 may affect taxpayers. We expect that draft guidance will be released late 2024 for public consultation.
Taxpayers should also continue to consider Taxpayer Alert 2018/2 that outlines our concerns regarding the mischaracterisation of activities or payments in connection with intangible assets and engage with us on their specific circumstances.
The ATO looks forward to greater certainty for the Australian community.